It’s Medicare enrollment season, and I’d like to help people turning 65 in the next couple of years avoid an expensive surprise. Unfortunately, people tend to be broadsided when they have to pay far more for their Medicare benefits due to the income-related monthly adjustment amount, or IRMAA. This Medicare “adjustment,” also referred to as a tax or surcharge, is confusing, but with some basic information, you can avoid getting an expensive surprise from IRMAA and know when it’s time to talk to a professional.
Medicare Basics
Medicare is a federal health insurance plan for people over 65 and certain younger individuals with disabilities. In most situations, people should start the enrollment process 3 months before their 65th birthday. Once a person is enrolled, they can make changes to their plan on an annual basis from October 15th to December 7th. This stuff gets complicated, and if you choose the wrong option, it can be tough to make a change, so be sure to talk to a Medicare expert.
Medicare is comprised of four “parts” that cover different medical expenses, like drugs or doctors’ visits. These parts are referred to as Parts A, B, C, and D. It’s important to note that Medicare was never intended to cover every possible medical expense, so it’s common to buy “medigap” policies for additional coverage. Again, decisions about Medigap are complicated and potentially expensive, so talk to a Medicare expert.
Did You Say Something About an Expensive Surprise?
IRMAA, the adjustment we mentioned a moment ago, is a surcharge added to Medicare Parts B and D if you have a relatively high income. While paying more is never fun, here’s where this tax really catches people off guard: it’s based on your income… from two years ago! So, if you got a bonus or took money out of your IRA at 63, you would have to pay this surcharge, even if your income is low at 65. The surcharge applies every year, so if you pull money out of your IRA to go on a trip for your 66th birthday, you could end up paying this surcharge unexpectedly when you’re 68. People with relatively low income may face a big surcharge because of a past windfall.
One important thing to note is that IRMAA is a tiered tax based on income. The higher your income, the more you pay, and the jumps happen all at once instead of gradually. That means if your income was over a given threshold by even just $1 two years ago, you will owe the full surcharge for the entire year. The surcharges for 2026 are listed below, but keep in mind, all but the top tax bracket are adjusted for inflation each year. Unfortunately, this surcharge can become a significant expense.
IRMAA Surcharges for 2026 (cms.gov)
Single Filer’s Income | Married Filer’s Income | Part B Annual Premium | Part D Annual Premium | Total Annual Premium |
Up to $109,000 | Up to $218,000 | $2,434.80 | $0 | $2,434.80 |
Up to $137,000 | Up to $274,000 | $3,409.20 | $174 | $3,583.20 |
Up to $173,000 | Up to $346,000 | $4,870.80 | $451.20 | $5,322 |
Up to $213,000 | Up to $426,000 | $6,332.40 | $729.60 | $7,062 |
Up to $500,000 | Up to $750,000 | $7,790.40 | $999.60 | $8,790 |
Over $500,000 | Over $750,000 | $8,306.40 | $1,102.80 | $9,409.20 |
Strategies to Avoid Paying More for Medicare
The first thing to be aware of is that not all sources of income are counted when calculating IRMAA. By knowing what is and isn’t countable, you can take steps to keep your countable income below any of those pesky thresholds and avoid this surcharge. The table below lists the sources of income that are counted and those that are not.
Income Included in IRMAA Calculation | Income Not Included in IRMAA Calculation |
Wages & self-employment income | Roth IRA & Roth 401(k) withdrawals |
Traditional IRA & 401(k) withdrawals | Qualified HSA distributions |
Required Minimum Distributions (RMDs) | Qualified Charitable Distributions |
Pension & annuity income | Reverse Mortgage & HELOC proceeds |
Social Security benefits | Life insurance death benefits |
Capital gains (short & long term) | Gifts and inheritances |
Tax-exempt municipal bond interest | Veterans’ benefits |
Strategies to Minimize the IRMAA Surcharge
Fortunately, you can control when you take certain types of income, and since some types of income aren’t countable, several strategies are available to mitigate this tax.
1. Use qualified charitable distributions (QCDs). Retirees over age 70.5 can donate directly from their IRA to a charity, which can satisfy required minimum distributions and prevent your IRA distributions from being counted in your income. If you are charitably inclined, donating is a great way to support a great cause, manage your income tax, and avoid a potential IRMAA income threshold.
2. Put money in a Roth over the years. This is one of the biggest mistakes I see unadvised investors make. They want to lower taxes while they’re working (who can blame them?) so they fund their traditional IRAs and traditional 401(k)s to get a tax deduction in the current year. That can help you keep more of your income while you’re working, but it all counts as income when you’re retired, creating higher future taxes and risking an IRMAA surcharge.
I typically advocate for what I’ll refer to as “tax diversification”. When you’re working, thoughtfully put some money in both traditional and Roths so that, when you’re retired, you can pull some cash out of your traditional accounts and, if you’re getting too close to an IRMAA threshold, pull the rest out of your Roths, which isn’t countable income.
3. Harvest capital losses strategically. Simply put, capital gains are your profit from an investment. If you bought a bond for $1,000 and later sold it for $1,100, your capital gain or profit would be $100, which may be taxable in the year you receive it. Fortunately, you can offset gains with capital losses, so it may make sense to take a capital loss when you expect relatively high capital gains. This is one way a good financial advisor can add a lot of value.
4. Do Roth conversions in the lean years before you’re 63 years old. Lean years are never fun, but if your income dips during your working life, they can be an opportunity to convert funds from your IRA to a Roth. You may have to pay income taxes in the current year, but it will give you more funds in the future that won’t count towards the IRMAA surcharge.
5. Be thoughtful about when you decide to start taking income from annuities, pensions, or social security because they all count towards the IRMAA surcharge. At times, it can make sense to delay these income sources and draw from your IRA or brokerage account. One common mistake I see is that people often work for most of the first year after retiring and immediately activate their pensions and social security instead of waiting until the beginning of the next year, which can result in unnecessarily high income that costs them in terms of income tax and IRMAA.
Conclusion
Unfortunately, the federal government taxes Medicare benefits too. The tax itself is complicated because it’s based on income from two years prior. This can lead to frustration and hardship since high income in one year doesn’t guarantee high income in future years. The good news is, since the IRMAA surcharge is bracketed and since there are sources of income that don’t count, being strategic can help mitigate this particular tax. While understanding these basics can be helpful, juggling Medicare, Medigap, income thresholds, and countable income can be overwhelming. A fiduciary financial advisor, CPA, and Medicare expert can help simplify and make sure nothing is being overlooked.